Intriguing twists and discoveries in a case against a former arms merchant

REMEMBER Adnan Khashoggi, who amassed a fortune in the 1970s and 1980s brokering arms sales to his fellow Saudis? He was never quite the world’s richest man but he may have been its biggest spender, splashing out $250,000 a day to maintain his lifestyle. At one point his many residences included 16 flats knocked into one in New York. One of his parties lasted five days and was described by an awestruck reporter as “the most extravagant event in European history”. He counted national leaders among his friends.

Mr Khashoggi’s fortunes declined in the late 1980s, thanks to overspending on festivities, ill-advised investments and his entwinement in scandals including the collapse of the Bank of Credit and Commerce International, the fall of Ferdinand Marcos and the Iran-Contra affair—though he was never convicted of criminal wrongdoing. He now claims to be broke. That hasn’t stopped a tenacious creditor and its lawyers hounding him for an 11-year-old debt of $21m to a securities-clearing firm. In a move that would break new legal ground if successful, they are trying to get the American judgment against Mr Khashoggi enforced in his native Saudi Arabia.

The debt was incurred in 2001 from buying shares in GenesisIntermedia, a small NASDAQ-listed firm to which Mr Khashoggi already had close links. The purchases were made “on margin” (only a down-payment was made) through Fleet Securities, then part of FleetBoston, a bank later bought by Bank of America. Weeks later terrorists attacked the World Trade Centre, shaking markets and sending Genesis’s share price into a death spiral. Mr Khashoggi promised to settle with Fleet, but never did.

Early attempts to recover the debt through arbitration got nowhere because the shell company through which Mr Khashoggi traded had been removed from the corporate register in Bermuda. After Fleet Securities changed hands in 2007 its new owner, Broadridge, sued him. In 2011 a district court ordered Mr Khashoggi to pay almost $40m (the original debt plus 9% annual interest). He appealed, but lost earlier this year. The courts concluded that the trading had probably been part of an elaborate scheme to inflate Genesis’s share price while it was touted to potential buyers. This was also the subject of an investigation by the Securities and Exchange Commission; it was settled in 2010 with Mr Khashoggi accepting a five-year ban as a director or officer of a public company.

The plaintiffs made some interesting discoveries during the case. Mr Khashoggi refused to be deposed in America because he had been refused a visa under the Immigration and Nationality Act, which covers terrorists and those with known or suspected links to them. It is unclear whether he is still on the list, or why he was on it in the first place (other than that his father had once been doctor to Osama bin Laden’s father, a construction magnate).

It also emerged that someone with the same name as an official in the Saudi embassy in Washington, Hassan Yousef Mohammed Yassin, had paid at least one of Mr Khashoggi’s legal bills. When the diplomat was subpoenaed for information, he invoked immunity through the embassy’s Washington-based lawyers, who threatened to seek unspecified “sanctions” under the Vienna Convention unless the request was dropped. This fuelled suspicions that the Saudi state was throwing a protective arm round Mr Khashoggi for some reason, though there is no clear evidence of this, nor that the diplomat was the same Mr Yassin who paid the bill. Mr Khashoggi’s sister subsequently said that they had a cousin with that name.

Broadridge remains determined to get the 77-year-old Mr Khashoggi to cough up, even hiring Mintz Group, a firm of investigators, to help its lawyers at Levi Lubarsky & Feigenbaum (LL&F) hunt for assets. They are sceptical of his claims that he long ago frittered away a fortune once estimated at close to $4 billion. But they have yet to find evidence that he shifted any assets into vehicles fronted by nominees. In a 2008 deposition Mr Khashoggi claimed to have only two homes left, in Jeddah and Riyadh, after selling residences in fancy locations such as Monte Carlo and Cannes.

Just deserts

The lawyers are now trying to get Saudi Arabia to enforce the judgment. This won’t be easy. American commercial rulings have more chance of being recognised than those handed down by English courts, says Andreas Haberbeck of Hatem Abbas Ghazzawi, a law firm in Jeddah. But he can think of just one case in which such a judgment was actually enforced, and the debtor was already dead. The $18m by which Mr Khashoggi’s debt has grown since being incurred would be uncollectable under any circumstances because charging interest violates sharia law.

One ray of hope is Saudi Arabia’s new enforcement law. This hands new powers to the special “execution judges” who handle foreign rulings, including the power to force debtors to disclose their assets. However, the procedures for doing this remain “as clear as mud”, says another lawyer. And Saudi courts are unlikely to rush to lay bare the finances of a well-known native son. But Broadridge shows no sign of giving up. Howard Levi of LL&F says his client is “determined to pursue Khashoggi all over the world, including in Saudi Arabia, and then his heirs if necessary.”